Abstract:
The monetary policy transmission mechanism can broadly be categorised into three
separate channels: the interest rate channel, the credit channel and the other asset price
channel. This paper seeks to examine the bank-lending channel of the credit channel
of monetary policy in South Africa by making use of structural vector autoregressions
(SVAR’s). The pass-through effects of a change in the repurchase (repo)
rate on bank deposits and loans and output, are tested using a parsimonious vector
error correction model (PVECM). The Johansen (1988) cointegration procedure is
used to test for a demand- or supply-driven bank-lending channel. In this way, the
validity and effectiveness of the monetary policy regime in South Africa is tested and
evaluated.
